November 27, 2007

Should The FCC Regulate Cable?

The Federal Communications Commission chair has declared that the thresholds of cable penetration have exceeded the minimum necessary for FCC regulation and intends on bringing cable under its jurisdiction. Kevin Martin may not have a majority of commissioners on his side, however, and Congress has bristled at the notion of an expansion of agency power. The heart of the issue lies in whether cable is a monopoly, where market forces have little sway:

The Federal Communications Commission is scheduled to vote today on whether it will consider applying broad regulations to a cable television industry that has been largely unregulated at the federal level for more than 20 years.

FCC Chairman Kevin J. Martin is pushing the commission to take up the issue, but support among other members is uncertain and the vote is part of a crowded agenda still being assembled last night in a process one staff member called "chaotic."

Martin's proposals have provoked furious opposition from the cable industry.

A vote could begin a process resulting in a national cap on cable ownership, with no cable company allowed to have more than 30 percent of all U.S. subscribers, a ceiling that Comcast Communications is near. It could also reduce prices that cable companies could charge smaller or independent programmers to lease access on unused channels.

Martin claims that the 70/70 threshold has been met. That delineation barred FCC jurisdiction over cable until 70% of all households had access to cable service with at least 36 channels, and 70% of those had subscribed to the service. According to a study commissioned by the FCC, the 70/70 threshold was met this year, with slightly over 71% of all cable-ready households now subscribing to the service. Martin wants to move now to assert FCC authority.

What will the FCC do with cable? Much the same as it did with broadcasters -- limit ownership and impose some pricing structures. If cable was a true monopoly, this would make some sense. Where government allows monopolies, then market forces cannot exercise control over quality and cost as a free-market system would.

Is cable really a monopoly? Most homes have only one cable provider option. For instance, I use Comcast, the nation's largest cable provider, but that's because Comcast owns the delivery mechanism in my community. In that sense, Comcast is a monopoly, because I cannot contract with Time Warner or any other competitor, just as Time Warner's customers cannot contract with Comcast in their communities.

However, I do have other options. I could instead get my entertainment from DirecTV or Dish Network. My services for Internet and local phone service are bundled under Comcast, but I could opt to split them out to Verizon's wireless network (which I use anyway, for travel) and any number of local phone service options. These choices would be considerably less convenient, but they exist, and I could conceivably save money by pursuing them. If Comcast failed to deliver quality service and an economical and convenient product, I'd be tempted to do so.

The FCC should tread very lightly when assuming jurisdiction over cable. In a world with a plethora of communications sources, the agency is already edging towards being an anachronism, a by-product of an era when telecommunications required massive capital and risky return. As Martin's enthusiasm for regulation shows, the FCC has become the risk rather than protection for telecommunications investment.


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